UK Law and Practice Contributed by: Sam Kay, Philippa List, Mark Stapleton and Nicolas Kokkinos, Dechert LLP
2.2 Fund Investment 2.2.1 Types of Investors in Alternative Funds Private Funds Investors typically seen investing in private closed-ended funds in the current market include pension funds, sovereign wealth funds, endow - ments, insurance companies, fund of funds and high net worth individuals. Listed Funds Closed-ended listed funds can be marketed broadly and attract both institutional and indi - vidual investors. 2.2.2 Legal Structures Used by Fund Managers Private Funds Limited liability partnerships (LLPs) tend be the most commonly used legal entity for the man - agement entities of private equity and venture capital funds, which are attracted by some of the benefits of the LLP structure, such as flexibility and the fact they are transparent for direct tax purposes and can benefit from National Insur - ance contribution savings. Listed Funds The legal structure used for the management entity of listed alternative funds will depend on the jurisdiction in which the manager is based. The most common structure seen is a corporate vehicle. 2.2.3 Restrictions on Investors Other than general marketing/financial promo - tion rules in the UK, there are no restrictions under UK legislation on the type of parties that can invest in a fund. However, in practice, REITs seek to prevent certain corporate investors from holding interests of 10% or more due to the adverse tax consequences that would oth - erwise arise.
2.3 Regulatory Environment 2.3.1 Regulatory Regime
Both open and closed-ended funds in the UK will almost certainly be AIFs for the purposes of the UK AIFM Regime. As such, the AIF’s man - ager will be an AIFM and will need to be author - ised to carry out AIF management in respect of that vehicle. Any person who carries on the activity of managing an AIF in the UK without being duly authorised, and in the absence of an exemption, commits an offence. In addition, if they have entered into an agreement with anoth - er person (eg, an investor) in the course of that activity, this agreement is unenforceable against that other party, who is entitled to receive their money back, and to compensation for any loss. An ITC or REIT could be self-managed or man - aged by an external manager. The board of an externally managed ITC/REIT will generally con - sist of non-executive directors, the majority of whom must be independent of the investment manager. In many cases, ITCs and REITs now have no manager representative on the board, due to the unpopularity of such arrangement with investors. 2.3.2 Requirements for Non-Local Service Providers The UK AIFM Regime sets out various provisions relating to service providers, such as depositar - ies and valuers. Neither the UK AIFM Regime nor any other UK legislation restricts the use of non- UK service providers to provide these services. However, one restriction does apply in the UK in respect of external valuers: UK legislation pro - hibits an external valuer from delegating valua - tion to a third party. Under the AIFMD, the depositary of an AIF must be established in the home member state of that
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